The narrative of global investing is shifting as emerging markets (EM) reclaim the spotlight. After underperforming developed markets for much of the past decade, EM equities surged by 33.6% in 2025 versus 17% for the S&P 500 and 21% for the MSCI World index. The early months of 2026 have extended this lead, with EM up an additional 5% year-to-date—the fastest relative outperformance on record. For investors seeking compelling diversification opportunities, this moment marks a pivotal opportunity to explore fresh growth stories.
Historical Performance: A Turning Tide
Since the late 1980s, EM has experienced two long cycles of outperformance and two periods of underperformance. The stretch from 2010 to 2024 was the longest weak cycle, raising questions about the durability of the current rebound. Yet today’s momentum is underpinned by more than fleeting sentiment.
With global growth set to hover around 3.3% in 2026 and 3.2% in 2027, EM benefits from structural profitability improvements, supportive monetary and fiscal policies, and tech investment tailwinds. As developed markets navigate modest growth, EM’s faster expansion and earnings surprises point toward sustained leadership.
2026 Outlook: Growth Projections and Key Markets
Analysts forecast EM earnings per share (EPS) growth of 21% in 2026, comfortably outpacing the 15% growth projected for the U.S. and 13% for developed peers. This rapid EPS growth is driving a partial convergence in return on equity (ROE) between EM and developed markets, making EM valuations increasingly attractive.
Within EM, several regions stand out as engines of expansion:
By 2030, India is on track to join the top tier of global economies. By mid-century, Asia may command a majority share of global GDP, with India rivaling or surpassing the U.S. Meanwhile, selective EM regions in Africa and Latin America offer unique demographic and resource-led growth narratives.
Sectoral Drivers Fueling Expansion
Several structural trends are propelling EM’s resurgence. Across the board, technology and consumer sectors are leading the charge.
- AI and Tech Infrastructure: Asia-Pacific hubs like Taiwan and Korea supply critical semiconductors and data-center equipment, while China focuses on EVs, batteries, and quantum materials.
- Manufacturing and Supply Chains: Southeast Asian countries and Mexico benefit from near-shoring and geopolitical diversification of production networks.
- Premium Consumption: Rising middle classes in India and Brazil are driving demand for healthcare, digital services, and lifestyle brands.
Complementing these, EM central banks are in easing cycles, and many governments are enacting reforms to boost domestic demand and attract foreign investment.
Building Your Emerging Market Strategy
Investors intrigued by EM’s dynamism should adopt a disciplined approach that balances upside potential with risk controls. While valuations remain more attractive than those in developed markets, EM exposure involves currency fluctuations, political events, and trade-policy uncertainties.
- Diversify Across Regions: Combine high-growth markets like India and Southeast Asia with value plays in Latin America and the Middle East to achieve balanced portfolio exposure.
- Embrace Thematic Investing: Target secular themes—AI supply chains, digital finance, green infrastructure—that can outpace local GDP growth and offer long-term alpha potential.
- Monitor Valuations and Risk: Use tools such as MSCI EM ETFs (EEM, VWO) or country-specific funds (INDA) to gain liquid exposure while keeping an eye on forward P/E and ROE trends.
Risk factors to watch include sudden tariff hikes, political elections, and commodity-price swings. A prudent investor will set clear entry and exit points, use position sizing to manage volatility, and maintain a long-term horizon to ride through cyclical fluctuations.
Practical Steps for Investors
To translate conviction into action, consider the following steps:
- Assess Your Current EM Exposure: Identify existing allocations in your portfolio and evaluate whether they align with the latest growth forecasts.
- Choose the Right Vehicle: Decide between broad-based EM ETFs, single-country ETFs, or active mutual funds depending on your risk tolerance and conviction level.
- Implement Staggered Entries: Use dollar-cost averaging to build positions over several months, reducing timing risk in volatile markets.
- Stay Informed and Flexible: Monitor global trade developments, corporate earnings reports, and central bank policies to adjust your strategy as conditions evolve.
By adopting a structured process and focusing on diversified sector exposure across regions, investors can harness emerging markets’ current wave of momentum without exposing themselves to unnecessary risks.
Emerging markets offer a compelling blend of growth and innovation at a time when developed economies face slower expansions. With strong macroeconomic fundamentals, powerful sectoral drivers, and attractive valuations, EM presents an opportunity to enhance long-term returns. Investors who craft disciplined, diversified strategies stand to participate in the next chapter of global growth.
